Given the very nature of angel investing, there are no formal requirements to participate. Still, some observers have tried to define angels with at least some precision. Gerald A. Benjamin and Joel Margulis, in The Angel Investor’s Handbook: How to Profit from Early-Stage Investing, describe angels as wealthy individuals willing to invest in high-risk deals offered by entrepreneurs whom they admire and with whom they wish to be associated. Others have defined business angels as people who provide equity capital to companies without the intervention of a third party, such as a venture capital firm. To put it another way, angels invest directly, not through intermediaries.
Just about anyone can be an angel as long as they have sufficient personal wealth and a willingness to invest in high-risk ventures. But for many angels, it’s not just about the money. Although money is always important for angels, they may also look for nonfinancial rewards from investing.
Experience has shown that angels are driven by any one or more of these motives, although a seeker of angel finance would be well served to assume that the first of these motives is the most important:
- Financial reward. Angels invest with the prospect of a high financial reward. A good rule of thumb is that angels hope to quintuple their money in five years, although only a few actually do so. While financial criteria are rarely stated explicitly, they may be implicit in the investor’s decision to commit to market niches with great growth potential. In general, angels place less weight than VCs and other professional investors on the financial projections presented by the entrepreneur. Instead, they rely on gut feeling that a particular entrepreneur is worth investing in. Still, there are angels, a minority to be sure but a sizable one, who take a more professional approach, and they will often have explicit annual return goals in mind. Typically, these return objectives range between 25 and 50 percent.
- Playing a role in the entrepreneurial process. Angels enjoy their involvement in an entrepreneurial process. Given that most such investors are in their forties or fifties, and have already achieved success in their careers or with their own businesses, they like to use the time and money available to them to once again experience the thrill and challenge of nurturing a new business.
- Altruism. Although the term angels might give the impression that altruism is a motive, it is rarely the primary one. In some cases, however, investors are keen to pass on their skills to the next generation of entrepreneurs.
prosperity. This motive tends to be more common among angels living in rural areas or in small towns.
Read More : What Is The Angel Investors And Their Motivations?
